Six methods of unconventional monetary policy

In a recent response to questions, The Reserve Bank of Australia has listed six options of unconventional monetary policy that is considered in an event of extreme policy implementation. Westpac economists have also talked about potential unconventional monetary policy tools applicable to the NZ case here – this is worth a read, but is a different list!

In this post I would like to outline the RBA’s options and hopefully make them easy to understand.

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The disabled aren’t worth less than the old – so why does policy act like they are?

This article was originally published on the Infometrics website here.

One of the true tests of a society is measured by how it treats its most vulnerable members, particularly the old, the young, the sick, and the disabled. There is a lot of good with New Zealand and New Zealand policy. However, on assisting those unable to provide for themselves, our provisions for people unable to work due to a health condition is an area where we are increasingly failing. 

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2019 NZIER Economics Award

NZIER had their annual NZIER Economics Award earlier in the week – or as we often call it NZ Economist of the Year.  The winner for 2019 was John McDermott, current Executive Director and Motu and former Chief Economist of the RBNZ.

John was an excellent choice for this award. He has contributed significantly to NZ and international literature, while influencing policy making in NZ – especially through the high pressure times of the Global Financial Crisis. Furthermore, while doing all this he has taken time to do some economics teaching in Wellington, helping to inspire future generations of students.

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Monopsony employers paying higher wages?!

As part of my job as a researcher I like to read about different topics – I have done work on health economics, labour economics, and more recently firm level economics.  One topic that comes up across all these fields is the idea of a monopsony buyer for different things.

Looking across this blog I’ve seen monopsony discussed in terms of the labour market and in terms of migration and monetary policy.  However, I want to focus on concentration indices (as a proxy for monopsony) and wages.

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Forward guidance and unconventional monetary policy in NZ?

Forward guidance and unconventional monetary policy

I recently noticed that swap rates purchases were discussed as an unconventional monetary policy tool are discussed in Reserve Bank’s bulletin “Aspects of implementing unconventional monetary policy in New Zealand”.

Namely, they state:

Purchasing interest rate swaps could be a way to signal that the Reserve

Bank expects to keep the OCR low for a prolonged period. Swap rates

comprise the expectations of future policy rates, the term risk premium,

and margin for bank credit risk.”

So why would we want to keep OCR persistently low in long-term? Let’s have a closer look at this.

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Migration and wages: A model that is wrong but useful

The link between migration and wages is complex and confusing – especially when it is often communicated about in different ways (eg are we talking about wage growth now with regards to monetary policy, wages in specific industries due to the changing make-up of the economy, or long-run real wages?).  And I can’t be much help here.

However, I think this is one place where carefully using the macroeconomic model taught in ECON101 can help us to think about the issues a little bit – especially if we are narrowing the question to only “what is the monetary policy consequences of changes in migration flows“.  Now this model is wrong, assumptions in it are wrong, the outcomes it describes aren’t forecasts – but it clearly articulates tendencies we observe following a change in economic circumstances which will hold in more realistic models, and clarifies assumptions that may make these tendencies false.  We have pointed at this before for monetary policy – but lets outline a bit more now.

It is a model for thinking about the potential consequences of something in a critical way – not something that we accept uncritically as truth.  To me this is pretty damned useful as a way to start thinking about something, so let’s do it!

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